De Cogan Presents The Unaccountability Of Tax Devolution: A Case Study Of Business Rates Today At Toronto

Dominic De Cogan (Cambridge) presents The Unaccountability of Tax Devolution: A Case Study of Business Rates (with Penelope Tuck (University of Birmingham; Google Scholar)) at Toronto today as part of its James Hausman Tax Law and Policy Workshop Series:

This article was published in [2022] Public Law 38. It examines the accountability arguments for business rates devolution and shows them to be weak. They are undermined by the economic incoherence of the tax, the complexity of devolved powers and a lack of transparency around the use of powers. These problems resonate with a widely held belief that business rates ought to be repealed and replaced with a more carefully designed tax, especially in response to the pressures placed on the system by COVID-19. We are not hostile to these ideas but doubt the likelihood of rapid implementation, and therefore focus on the existing system, paying special regard to the COVID reliefs of 2020 and 2021. We suggest incremental improvements that could reinforce the accountability justifications for devolution; these might be useful even in the event that radical reforms are enacted.

A key justification for tax devolution is that it enhances sub-central accountability.  The meaning of ‘accountability’ in this context is not always clear, but it seems to embody two linked claims. 

First, that sub-central institutions make better decisions if given responsibility, not only for substantive policies, but for raising and spending the necessary revenues.  Second, that devolution incorporates local preferences into the tax system, a task sometimes though not invariably assisted by local electoral democracy.  We refer to these as the ‘fiscal responsibility’ and ‘local preferences’ arguments, though terminology varies.

These arguments are rhetorically powerful but are easier asserted than substantiated.  In this article, we examine business rates, the most deeply devolved of UK taxes, and show that the accountability arguments for rates devolution are weak.  They are undermined by the economic incoherence of the tax, the complexity of devolved powers and the sometimes-extreme lack of transparency around the use of powers.  The consequence is that rates devolution is only fully understood by a small network of experts.  Though the skill and experience of these experts guarantees a minimum standard of decision-making, this is a weak argument for devolution given that most of the same individuals would be working as rating experts in any event.

These concerns resonate with a widespread belief that rates ought to be repealed and replaced with a more carefully designed tax, especially in light of the additional pressures placed on the system by the COVID crisis.  We are not hostile to these ideas but doubt the likelihood of rapid implementation, and therefore focus on the existing system, paying special regard to the important COVID reliefs of 2020 and 2021.  We suggest incremental improvements that could reinforce the accountability justifications for devolution; these might be useful even in the event that radical reforms are enacted.